I am concerned about what appears to me to be a very sophisticated Internet
stock pyramid scheme involving three large capitalization corporate
entities, and an organization that purports to be an independent stock
investing news authority that is quite influential. There are many others
involved, however these appear to be come of the critical players.
The site "The Motley Fool" (www.fool.com) actively promotes three stocks,
America Online (AOL), Amazon.com (AMZN), and Yahoo! (YHOO).
This company does not disclose the nature of its business relationships with
these organizations, which are very extensive and complex.
The company feeds its stock "analysis" to brokerage news wires (specifically
Datek Online that I know of) and includes fliers with brokerage statements
recommending against shorting stocks like AOL, AMZN and YHOO, and
encouraging investment in these stocks and religious adherance to the "buy
and hold" philosophy. They also encourage the shorting of other Internet
stocks for those whose are "bearish", but not these.
I would encourage you to take a hard look into the complicated and
intertwining business relationships that The Motley Fool (owners David and
Tom Gardner) have with Yahoo!, Amazon.com and America Online and several
brokerages, and to entertain that corruption is occurring over the Internet
in relation to stock promotion schemes on a much larger level and with much
higher capitalization stocks than The SEC speaks to in its recent
warnings on the matter.
I believe that the mis-allocation of capital on our markets is very harmful
to the whole and particularly towards small capitalization corporate
entities. I am also particularly concerned as mania and pyramid investment
are classic pre-depression conditions.
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Publication Sent from www.fool.com to all Datek Online Customers
===============================================================
Internet Investing: Unprofitable is OK
There are an estimated 40 million Americans using the Internet, or about 20%
of the population. This numbers is expected to grow well over 30% annually
over the next three years (beginning in 1999), following a 40% jump this
uear. In 2001, it's estimated that over 100 million Americans will use this
Internet. Meanwhile, e-commerce volume is expected to grow more than 100%
annually into the year 2001.
These growth numbers are merely estimates - they're anyone's guess.
E-commerce is growing more quickly than was anticipated, though, which makes
the rush for mind share (and market share) even more vital right now for
Internet companies. That means spending money-and operating losses.
When you consider how young the commercial Internet is, and how young all
Internet companies are (while admitting that it takes time to turn any
company profitable), argument against most Internet companies usually boils
down to this illogical whine: "They're not making any money!"
Well, duh. Of course not. This is a new industry, with new companies that
are only beginning to build their businesses. The majority of start-up
comanies of any type, public or private, are not profitable for a number of
years anyway, often at least five.
The aim right now is not for profits. In recent weeks many articles about
Amazon.com have discussed the stock's valuation, mentioning the many good
things that Amazon does but then slamming it as a potential investment
because the company has yet to make a profit.
Amazon has been public for one year, and the idea behind going public was to
raise money so that it could spend it-not horde it, spend nothing more, and
then quickly be profitable. Amazon could have been profitable last year if
it hadn't spend any discretionary money. It probably would have had 1/10th
of the revenues, though, and it would have sacrificed its future. Instead,
the company spent aggressively and has built a sizable lead over the
competition.
Amazon (and other Internet firms) will continue to spend heavily until the
benefits gained by spending diminish substantially - which will happen
several years from now, when a majority of Internet users have established
habits that won't easily be changed by marketing initiatives. Now is when
habits are being formed, though, and you have to spend money to shape
habits.
If more leading Internet companies aren't making a profit in three to five
years, then the Internet economy as a while will have proven to be much more
challenging than anyone thought, and then the bears will have a valid
argument. But until "then" happens, bears need to find a different
argument, because one of these companies are even trying to make a profit.
They're trying to spend enough money so that they have a future - just as
this country's government spent more on its infrastructure, as a percentage
of income, during the Great Depression than during most all other time
periods. FDR knew that you needed to spend in order to have a future at
all.
In the meantime, when thinking of these stocks' valuations, a quite from The
Industry Standard magazine states, "If I tought a class, I would ask, 'How
much is this [Internet] company worth?' Anyone who would answer, I would
flunk."
This interesting remark is from Warren Buffet. It suggests that he doesn't
take the Internet bears and their doomsday price predictions any more
seriously than we do - because no one knows for certain. As with any
industry, though, leaders will continue to emerge while hundreds of
second-tier companies are likely to struggle. So rather than look for
immediate profits at these companies, a potential Internet investor should
look for the absolute leaders now - those with the best management and the
potential to win the long-term market share. As for bears, short the third
and fourth-tier Internet players if you want to short any of these
companies, because we've all seen what shorting the leaders like America
Online, Yahoo! and Amazon has amounted to so far: Nothing but "Ouch."
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